IVERSITY  OF  OREGON  BULLETIN 


W SERIES 


SEPTEMBER,  1911 


Vol.  IX,  No.  1 


THE 

DEVELOPMENT  OF  BANKING 
IN  OREGON 

By 

JAMES  HENRY  GILBERT,  Ph.  D., 

Assistant  Professor  of  Economics 
University  of  Oregon 


Published  monthly  by  the  University  of  Oregon,  and  entered  at  the  post-office  in 
Eugene,  Oregon,  as  second-class  matter 


i 


THE 

DEVELOPMENT  OF  BANKING 
IN  OREGON 

By 


JAMES  HENRY  GILBERT,  Ph.  D., 

Assistant  Professor  of  Economics 
University  of  Oregon 


PREFACE. 


In  1907  the  author  of  the  present  monograph  published  a work  entitled 
Trade  and  Currency  in  Early  Oregon.  The  period  covered  by  this  earlier 
work  ended  with  the  close  of  the  Civil  War  and  the  solution  of  the  legal 
tender  problem  reached  by  the  Pacific  Coast  states.  Furthermore,  the 
discussion  was  concerned  almost  wholly  with  the  commercial  and  monetary 
history  of  the  State  and  little  or  no  attention  was  paid  to  the  develop- 
ment of  banking.  It  was  the  intention  at  that  time  to  supplement  the 
monetary  history  with  an  account  of  the  later  development  of  credit 
institutions.  At  the  suggestion  and  through  the  aid  of  the  Carnegie 
Bureau  of  Economic  Research  the  task  was  undertaken  and  finished 
during  the  year  1908,  but  for  various  reasons  publication  has  been 
delayed  until  now.  In  the  following  pages  an  attempt  has  been  made 
to  notice  only  general  phases  and  tendencies  and  to  estimate  the  services 
rendered  by  the  banks  at  different  stages  of  economic  progress. 

The  author  is  indebted  to  the  Carnegie  Bureau  for  financial  assistance 
in  collecting  data  for  the  present  publication.  He  also  wishes  to 
acknowledge  his  obligations  to  George  H.  Himes,  assistant  secretary  and 
curator  of  the  Oregon  Historical  Society,  to  Professor  Morse  Stevens 
of  California,  and  to  many  bankers  and  business  men  of  the  State  who 
have  helped  materially  in  supplying  sources  of  information  or  furnishing 
important  details. 

J.  H.  G. 

Eugene,  Oregon,  August,  1911. 


Digitized  by  the  Internet  Archive 
in  2017  with  funding  from 

University  of  Illinois  Urbana-Champaign  Alternates 


https://archive.org/details/developmentofbanOOgilb 


THE  DEVELOPMENT  OF  BANKING 
IN  OREGON. 


Banking  institutions  are  as  a rule  established  only  after  a community 
has  reached  a certain  stage  of  commercial  and  industrial  development; 
but  in  turn  the  rapidity  with  which  the  resources  of  a new  country  are 
utilized  and  its  trade  developed  depends  very  largely  on  the  supply 
of  available  capital  and  the  use  that  is  made  of  its  circulating  medium. 
The  history  of  banking,  then,  is  only  a phase  of  economic  history  but 
one  of  the  most  difficult  to  treat  in  a satisfactory  manner  because  of 
the  intricate  relationship  between  institutions  of  credit  and  other  forms 
of  business  and  the  difficulty  of  estimating  aright  the  importance  of 
the  banking  function.  Oregon  is  one  of  the  newer  communities  of  the 
far  west  and  has  without  question  natural  advantages  which  fit  it 
for  a high  stage  of  industrial  development  but  its  progress  has  been 
slow  along  many  lines  because  until  recently  the  State  has  been  so 
largely  dependent  on  its  own  capital  resources.  Much  of  its  banking 
capital  was  slowly  accumulated  through  the  ordinary  processes  of  trade. 
Of  course  branches  of  foreign  banks  were  established  in  Oregon  at  an 
early  date  but  the  capital  of  parent  institutions  was  hardly  available 
for  State  investments  at  all.  As  a rule  local  branches  made  use  of 
resources  collected  on  the  spot,  merely  helping  the  community  to  utilize 
its  own  capital  to  the  best  advantage.  On  account  of  distance  from 
the  financial  centers  of  the  east  and  the  lack  of  easy  communication 
it  was  not  until  the  early  eighties  that  outside  investments  of  capital 
became  at  all  important.  Even  when  eastern  investors  began  to  look 
toward  the  Pacific  Coast  Oregon  and  Washington  attracted  little  atten- 
tion on  account  of  the  rapid,  even  spectacular,  development  of  Cali- 
fornia to  the  south.  It  was  not  until  a comparatively  recent  date  that 
a complex  system  of  banks  was  developed  in  Oregon  and  there  has 
been  a continual  shortage  of  banking  capital  as  compared  with  the 
older  communities  of  the  east. 

Another  peculiarity  of  banking  history  in  Oregon  is  the  absence  of 
any  experience  with  State  banks  of  issue.  The  constitution  of  1857 
withheld  the  right  to  charter  a State  bank,  forbade  the  founding  of 
any  bank  of  issue  within  the  State  or  the  creation  of  any  credit  device 
to  circulate  as  money.* 

The  history  of  banking  in  Oregon,  therefore,  has  nothing  to  do  with 
the  function  of  issue  but  must  confine  itself  almost  exclusively  to  an 

* Oregon  Constitution,  Article  XI,  Section  1. 

5 


account  of  deposit  and  lending  as  a means  of  utilizing  the  community’s 
capital  with  some  attention,  of  course,  to  checks,  drafts  and  clearing- 
house facilities  as  agencies  for  economizing  the  circulating  medium. 

Viewed  from  this  standpoint  then  the  history  of  banking  in  Oregon 
may  be  conveniently  treated  in  five  consecutive  periods.  The  first  of 
these,  which  extends  from  1859  to  1873,  may  be  characterized  as  the 
era  of  the  early  commercial  banks.  During  this  period  but  few  banks 
were  organized  and  these  were  closely  connected  with  the  mercantile 
business.  Commercial  loans  occupied  the  attention  of  the  banker  almost 
exclusively  and  even  this  demand  was  poorly  supplied.  The  second 
period  1873-1880  may  be  denominated  the  era  of  mortgage-investment 
companies  and  of  savings  banks.  During  these  years  foreign  capital 
sought  investment  in  real  estate  loans  and  the  moderate  savings  of 
the  industrious  and  thrifty  classes  were  collected  and  loaned  to  an 
advantage.  The  years  1880-1890  we  have  termed  the  period  of  industrial 
awakening  and  of  national  banking  organization.  This  decade  witnessed 
the  closer  union  of  all  sections  of  the  Pacific  Northwest  through  the 
extension  and  improvement  of  railway  systems,  increased  trade  and 
the  rapid  development  of  banking  in  the  smaller  communities  of  the 
State.  Portland  became  at  the  same  time  the  wholesale  and  financial 
center  of  the  northwest,  and  toward  the  end  of  the  period  the  first 
and  only  clearing  house  association  in  the  State  was  organized  in  the 
metropolis.  The  events  of  the  next  ten  years  (1890-1900)  center  about 
the  panic  of  1893  which  resulted  in  the  failure  and  dissolution  of  a 
number  of  banking  institutions  and  seriously  impaired  the  working 
capital  of  others.  The  years  1900-1908  might  be  characterized  as  a 
period  of  integration.  During  this  time  the  banks  regained  more  than 
was  lost  in  the  previous  decade,  the  financial  institutions  in  all  the 
large  cities  came  to  recognize  their  mutual  dependence  on  each  other, 
and  finally  State  and  private  as  well  as  national  banks  were  placed 
under  strict  administrative  supervision. 

I. 

As  agencies  for  receiving  deposits  of  gold  dust,  money  and  other 
valuables  for  safe-keeping  and  for  issuing  drafts  on  San  Francisco  and 
New  York,  the  merchants  and  express  companies  were  the  first  bankers 
and  began  operations  early  in  the  fifties.  The  mercantile  firm  of  Couch 
& Company,  Portland,  advertised  themselves  as  “bankers,  wholesale  and 
retail  merchants,”*  and  sold  exchanges  on  New  York  and  San  Francisco. 

Norris  & Company,  while  announcing  their  business  as  grocers  and 
commission  merchants  in  February,  1851,  added  that  they  had  responsible 
connections  with  both  California  and  the  east  and  were  enabled  to  draw 
drafts  on  all  principal  cities  in  the  Union,  also  to  forward  gold  dust 
to  eastern  cities  on  most  favorable  terms,  t 

The  express  companies,  whose  regular  business  at  this  time  consisted 
so  largely  in  receiving  and  forwarding  gold  dust  and  other  valuables, 

*Oregonian,  December  4,  1850. 

tGeorge  H.  Himes  in  Portland  Journal,  December  20,  1907. 

6 


naturally  developed  into  agencies  for  deposit  and  safe-keeping.  The 
vaults  of  the  express  companies  became,  to  a certain  extent,  the  com- 
munity’s strong  boxes.  Adams  & Company  began  an  express  business 
in  Portland  as  early  as  1851  through  an  agency  known  as  Todd  & Com- 
pany, which  was  authorized  to  draw  bills  of  exchange  on  all  houses 
on  the  Atlantic  and  on  London  at  the  “usual”  rates.  In  April,  1852, 
Adams  & Company  established  a regular  branch  office  in  Portland  and 
were  represented  by  Newell  & Company.* 

In  October,  1852,  Wells,  Fargo  & Company  announced  themselves 
as  “bankers  and  exchange  dealers”  and  established  an  office  in  Portland 
with  W.  H.  Barnhart  & Company  as  agents. t 

Probably  all  these  express  companies,  and  certainly  Adams  & Com- 
pany, not  only  furnished  facilities  for  remitting  money  but  also  received 
money  on  deposit.  This  latter  firm  advertised  that  deposits  would  be 
received  “on  special  or  general  account,”  and  it  is  a matter  of  record 
that  upon  the  failure  of  the  company’s  house  in  San  Francisco  a certain 
stockman  of  Southern  Oregon  had  a deposit  of  $15,000  with  the  Port- 
land branch.  The  San  Francisco  office  of  Adams  & Company  certainly 
did  a regular  banking  business,  for,  at  the  time  of  its  failure,  it  was 
said  to  have  had  on  hand  “thousands  of  dollars  in  bills  taken  from 
merchants  for  indispensable  accommodations.”t 

Just  how  far  the  Portland  house  followed  the  practice  of  lending  is 
a matter  of  doubt. 

The  services  of  the  express  companies  and  merchants  as  depositories 
for  money  and  valuables  were  probably  unimportant  and  incidental  to 
their  main  functions  of  transporting  and  exchanging  goods  and  certainly 
the  business  of  discount  and  lending  was  of  such  minor  importance  as 
scarcely  to  deserve  attention. 

The  history  of  banking  in  Oregon  really  dates  from  April,  1859, 
when  W.  S.  Ladd  and  C.  E.  Tilton  established  a bank  in  Portland  under 
the  firm  name  of  Ladd  & Tilton.  The  original  capital  was  $50,000  but 
it  was  shortly  increased  to  $250,000.11 

Small  as  this  enterprise  was  at  the  beginning,  it  represented  the 
sole  banking  institution  of  the  State  for  a period  of  seven  years,  and, 
during  that  time,  met  all  the  demand  for  banking  facilities.  If 

About  1866,  a group  of  business  men  including  A.  A.  Ankeny,  Phil. 
Wasserman,  J.  B.  Harker,  Asa  Harker,  A.  M.  Starr  and  L.  M.  Starr 
founded  the  first  national  bank  in  Portland.  The  business  of  the  bank 
was  small  and  its  future  doubtful  until  about  1869  when  Henry  Failing 
and  H.  W.  Corbett  obtained  a majority  of  the  stock  and  increased  the 
capital  from  $100,000  to  $250,000.£ 

*Oregonian,  December  6,  1851  ; Ibid , March  6,  1852  ; Ibid,  April  3,  1852. 
t Oregonian,  October  16,  1852  ; Ibid,  January  15.  1853. 

$G.  H.  Himes  in  Portland  Journal,  December  20,  1907  ; Argument  of  the 
Counsel  for  Alvin  Adams  in  the  Trial  of  A.  A.  Cohen  for  Embezzlement,  p.  55. 

|| H.  W.  Scott,  History  of  Portland,  p.  403. 

II Oregonian,  January  1,  1901. 

£ Portland  Journal,  Anniversary  Edition,  September  8,  1907  ; Oregonian  Hand- 
book, 1894,  pp.  138-139. 


7 


During  the  same  year  the  Bank  of  British  Columbia  established  a 
branch  in  Portland,  and  the  working  capital  of  these  three  institutions 
was  estimated  at  $1,500,000,  which  was  probably  adequate  for  all  mer- 
cantile business  then  carried  on,  since  the  entire  export  trade  of  Oregon 
at  this  time  did  not  exceed  $1,250,000.* 

There  was  still  no  organization  or  building  society  to  assist  owners 
in  making  improvements  on  farms  or  other  real  estate  and  very  little 
outside  capital  was  offered  for  loan  by  private  individuals.  As  late  as 

1872  the  combined  capital  of  the  three  Portland  banks  was  $750,000 
and  deposits  amounted  to  but  $2,195,000.  Outside  of  Portland  there 
were  only  two  other  banks  in  the  State,  Ladd  & Bush  (established  at 
Salem  in  1868),  and  John  Conner’s  Bank  at  Albany.  Both  of  these 
were  small  private  institutions  and  their  business  consisted  largely  in 
receiving  deposits  and  selling  exchanges. t 

There  were  no  savings  banks  in  the  State,  but  Ladd  & Tilton,  the 
First  National  Bank  and  the  Bank  of  British  Columbia  allowed  interest 
at  6 per  cent  on  time  deposits.  These  rates  on  savings  accounts  were 
from  one  to  two  per  cent  higher  than  current  rates  on  the  Atlantic 
and  were  very  nearly  the  same  as  those  paid  by  the  California  banks.+ 

It  was  probably  true  that  the  lack  of  savings  banks  was  not  con- 
sidered a hardship  by  the  thrifty  classes,  for  they  regularly  invested 
their  savings  in  city  or  suburban  real  estate  with  the  prospect  of  large 
gains  in  the  near  future. 

It  will  be  seen  at  a glance  that  the  resources  of  Oregon  banks  in 

1873  were  very  meager  but  there  was  no  considerable  demand  for  bank- 
ing facilities.  Agriculture  did  not  yet  produce  a large  surplus  and 
trade  was  still  undeveloped.  The  population  of  the  State  was  less  than 

100.000  and  Portland,  the  commercial  and  banking  center,  had  about 

8.000  people.  Prior  to  1868  the  shipments  of  gold  dust,  bars  and 
treasure  of  various  kinds,  which  were  handled  chiefly  by  the  express 
companies,  formed  in  value  about  three-fourths  of  all  the  exports  of 
Oregon.  After  1868,  however,  consignments  of  gold  dust  gradually 
fell  off  until  1872,  when  they  became  an  inconsiderable  item  in  trade. 
In  1873  the  gross  exports  of  merchandise  from  the  Columbia  River 
amounted  to  only  $3,124,606,  excluding  treasure;  and  in  1872  the  foreign 
exports  amounted  to  only  $778,376.11 

During  this  earlier  period  the  meager  capital  for  banking  purposes 
was  drawn  largely  from  the  profits  of  mercantile  business,  and  prac- 
tically none  was  borrowed  from  the  east  or  from  Europe.  Portland 
became  at  an  early  date  the  commercial  center  of  Oregon  because  of  its 
advantageous  position  as  a trading  point  for  the  Willamette  and  Columbia 
River  valleys.  Where  the  profits  of  trade  were  the  only  source  of 
banking  capital  it  was  natural  that  Portland  should  become  the  financial 
center  as  well.  Early  merchants  like  W.  S.  Ladd,  C.  E.  Tilton,  H.  W. 

*H.  W.  Scott,  History  of  Portland,  p.  403  ; Wm.  Reid,  Progress  of  Oregon 
and  Portland,  1868-1878,  p.  7. 

fHugh  Small,  Oregon  and  Her  Resources,  p.  117. 

t Ibid,  p.  118. 

|| Wm.  Reid,  Progress  of  Portland  and  Oregon  1868-1878,  p.  7. 


8 


Corbett,  Failing  & Sons,  Breck  and  Ogden  did  a large  retail  business. 
They  had  begun  with  their  own  capital  and  kept  the  profits  reinvested 
in  the  business.  During  the  days  of  gold  in  California  (1850-1860) 
and  the  period  of  active  mining  operations  in  Eastern  Oregon  (1860- 
1870)  the  profits  on  merchandise  were  considerable,  and  supplied  the 
capital  for  both  wholesale  and  banking  businesses.* 

Where  the  merchant  became  the  money  lender  there  was  undoubtedly 
a fairly  close  correspondence  between  the  interest  rate  and  the  average 
profits  of  trade.  How  large  were  the  gains  of  business  is  shown  by 
the  fact  that,  when  the  first  bank  was  established  in  1859,  the  customary 
rates  on  short  time  commercial  loans  were  from  3 to  5 per  cent  a 
month,  though  it  is  said  that  Ladd  & Tilton  took  the  best  loans  at  2^ 
per  cent.t 

Equally  high  rates  were  charged  for  mortgage  loans.  A statement 
of  the  case  of  Besser  vs.  Hawthorne,  for  example,  shows  that,  on  June 
20,  1859,  Cincinnatus  Schultz  and  his  wife  executed  to  Besser  a mortgage 
to  secure  the  payment  of  a note  for  $500,  with  interest  at  3 per  cent 
a month  for  a term  of  two  years,  t 

A lack  of  capital  coupled  with  unusual  opportunities  for  its  employ- 
ment were  responsible  for  these  abnormal  rates  of  interest.  The  events 
which  preceded  the  outbreak  of  the  Civil  War  restricted  still  further 
the  supply  of  loanable  funds.  The  Oregonian  of  March  7,  1861,  noticed 
that  there  was  an  unusual  scarcity  of  money,  and  remarked  that  loans 
and  discounts  were  scarcely  procurable  at  any  rates.  Reasons  assigned 
for  the  stringency  in  the  money  market  were  the  delayed  payment  of 
claims  against  the  federal  government  and  the  belief  that  agents  and 
officials  of  the  United  States  had  contracted  liabilities  for  which  the 
government  was  not  responsible,  while  the  continued  political  agitation 
in  the  east  lessened  confidence  among  business  men  and  made  investors 
slow  to  hazard  their  funds. 

High  rates  of  interest  were  made  illegal  by  the  first  usury  law  of 
October  16,  1862 — “An  act  to  regulate  the  rate  of  interest  on  money  and 
to  prevent  and  punish  usury.”  A territorial  law  of  January  26,  1854, 
had  fixed  the  legal  rate  of  interest  at  10  per  cent  on  debts  and  judg- 
ments where  no  rate  had  been  agreed  on  or  stipulated.  This  act, 
however,  left  borrower  and  lender  perfectly  free  to  contract  for  what- 
ever rates  they  chose,  and  even  provided  that  judgments  on  contracts 
calling  for  interest  in  excess  of  10  per  cent  should  bear  interest  at  the 
same  rate.  The  law  merely  prohibited  compounding  interest  on  long- 
time contracts  oftener  than  once  a year.  II 

The  act  of  1862  not  only  fixed  the  legal  rate  of  interest  at  10  per 
cent  but  also  prescribed  a maximum  of  12  per  cent  which  could  be 
charged  by  special  agreement.  This  law  provided  further  that,  where 
suit  was  brought  for  the  collection  of  a debt  bearing  interest  at  more 

*Oregonian,  Souven'r  Edition,  1890,  p.  69. 

fH.  H.  Bancroft,  W.  S.  Ladd,  A Character  Sketch,  p.  14. 

XOregon  Reports,  Vol.  3,  p.  130. 

|| Statutes  of  Oregon  1853-5Jf,  p.  532. 


9 


than  12  per  cent,  the  judge  was  empowered  to  declare  the  amount  of 
the  principal  forfeited  to  the  school  fund  of  the  county  in  which  the 
suit  was  instituted.* 

By  this  provision,  therefore,  the  creditor  lost  completely  while  the 
debtor  was  not  relieved  from  the  obligation  of  paying  the  principal 
because  the  rate  of  interest  was  usurious.  That  this  provision  of  the 
law  was  strictly  enforced  by  the  courts  in  suits  coming  under  their 
cognizance  is  shown  by  the  case  of  Chapman  vs.  the  State  of  Oregon. 
Action  had  been  brought  for  the  collection  of  a promissory  note  of  $350, 
secured  by  a chattel  mortgage  and  covering  debts  on  which  usurious 
rates  of  interest  had  been  charged.  A bonus  of  $50  had  been  given 
for  the  loan.  The  court  ruled  that  the  debt  should  be  forfeited  to  the 
school  fund,  and  that  the  State  was  also  the  owner  of  the  mortgage  to 
insure  its  collection.! 

Strict  as  the  law  was  and  rigidly  as  the  courts  applied  it,  it  is 
still  doubtful  whether  the  act  operated  at  once  to  reduce  rates  to  the 
borrower.  Rates  that  were  in  reality  usurious  often  resolved  them- 
selves into  a legal  rate  of  1 per  cent  a month,  plus  a commission  or 
bonus  of  from  2 to  10  per  cent.  Bank  rates  were  of  course  regularly 
quoted  at  1 per  cent  a month,  for  bankers  could  ill  afford  to  violate  the 
law  openly;  but  it  is  probable  that  even  bank  loans  were  often  placed 
through  the  money  brokers  where  a liberal  commission  was  added. 
In  quotations  for  the  money  market  during  this  period  two  rates  are 
invariably  mentioned,  the  regular  or  “customary”  rate  of  12  per  cent, 
charged  by  the  banks  on  short-time  loans,  and  a rate,  varying  from 
1 % to  2*4  per  cent  for  “street,”  “outside,”  “long-time,”  or  “private” 
loans.  Prior  to  1866  bank  rates  of  discount  were  frequently  quoted  at 
IV2  to  1 3A  per  cent,  but  in  the  autumn  of  1865  the  Portland  banks,  upon 
the  initiative  of  the  newly  established  Bank  of  British  Columbia,  agreed 
that,  after  January  1,  1866,  the  rates  on  overdrawn  accounts  and  dis- 
counted bills  would  be  12  per  cent  per  annum  and  that  interest  of  3 per 
cent  per  annum  would  be  allowed  on  all  credit  balances  of  $1,000  or 
upward.  This  agreement  also  stipulated  that  the  regular  rate  on  San 
Francisco  exchange  should  be  one-half  of  1 per  cent  premium  instead 
of  three-quarters  of  1 per  cent  which  had  hitherto  been  the  prevailing 
rate.! 

Down  to  1873  the  Portland  banks  made  loans  on  real  estate  scarcely 
at  all  but  confined  their  attention  to  commercial  business  almost 
exclusively.il 

Their  operations,  too,  were  characterized  by  extreme  caution.  Loans 
were  seldom  made  except  on  the  best  security  and  for  a period  of  more 
than  90  days.  Long-time  loans  for  industrial  purposes  or  loans  on 
real  estate  security  were  seldom  negotiated  except  by  money  brokers, 


* General  Laws  of  Oregon  1862,  pp.  115-116. 
t Oregon  Reports,  Vol.  5,  p.  432,  et  seq. 

tOregonian,  September  30,  1865;  Ibid,  December  ' 30,  1865. 

|| H.  W.  Scott,  History  of  Portland,  p.  403;  Hugh  Small,  Oregon  and  Her 
Resources,  p.  103. 


10 


where  the  commission  was  normally  5 per  cent,  though  at  times  a much 
higher  rate  was  charged.* 

In  spite  of  inducements  offered  by  the  borrower  there  was  still  a 
dearth  of  loanable  funds  in  the  local  market  and  complaints  were 
frequently  heard  that  needed  improvements  in  city  and  country  were 
delayed  for  want  of  capital. t 

Naturally  some  such  enterprises  were  highly  speculative  in  their 
character  and  capitalists  and  money  lenders  were  not  to  be  blamed 
for  exercising  proper  caution. 

The  few  banking  institutions  of  Oregon  were,  during  this  earlier 
period,  largely  independent  of  eastern  connections,  yet  the  financial 
panic  of  1873  had  a measurable  effect  on  the  local  money  market  and 
operated  to  raise  interest  rates  considerably.  In  December,  1872,  “out- 
side” discounts  were  quoted  at  from  1V2  to  2V2  per  cent,  and  as  much 
as  2 V2  per  cent  was  charged  by  street  brokers  on  acceptable  paper. 
There  was  a noticeable  stringency  in  the  money  market  in  the  early 
months  of  1873  and  during  the  following  summer  the  demand  for  loans 
was  intensified  by  two  further  circumstances.  Considerable  money  was 
needed  to  move  the  crops  and  grain  buyers  were  calling  for  accommoda- 
tions at  the  banks.  In  July,  1873,  Portland  was  visited  by  a disastrous  fire 
which  destroyed  about  one-fifth  of  the  property  valuation.  The  money 
for  rebuilding  the  burnt  district,  except  that  paid  by  outside  insurance 
companies,  had  to  be  borrowed  on  real  estate  security  and  property 
owners  were  eager  to  obtain  loans.  The  best  terms  on  which  money 
could  be  secured  for  building  purposes,  however,  was  17  per  cent  and 
the  reluctance  of  property  owners  to  mortgage  at  such  rates  checked 
the  rebuilding  and  further  progress  of  the  city.* 

II. 

Little  progress  was  made  in  commercial  banking  from  1874  to  1877 
and  the  three  Portland  banks  already  referred  to — Ladd  & Tilton,  the 
First  National,  and  the  Bank  of  British  Columbia — had  practical  control 
of  the  commercial  business  until  1878.  It  was  only  natural  that  capital 
derived  from  the  profits  of  trade  and  handled  by  merchants  should  seek 
investment  along  commercial  lines.  But  there  was  now  a considerable 
demand  for  mortgage  loans  which  the  banks  had  hitherto  failed  to  supply. 
It  was  estimated  in  1872  that  “at  least  $1,000,000  could  be  loaned  on 
real  estate  at  from  10  to  12  per  cent.”  II 

About  1874  the  demand  for  long-time  loans  on  real  estate  was  partly 
met  by  the  introduction  of  foreign  capital.  The  Oregon  & Washington 
Trust  Investment  Company  was  organized  with  a capital  of  $250,000 
to  be  loaned  exclusively  on  farms  and  city  property  for  a term  of  three 
to  five  years.  This  corporation  was  formed  in  Scotland  and  in  less 


* William  Reid,  Progress  of  Portland  and  Oregon  1868-1818,  p.  20  ; H.  W.  Scott, 
History  of  Portland , p.  403  ; Oregonian,  August  26,  1873  ; Ibid,  November  13,  1869. 
f William  Reid,  Progress  of  Portland  and  Oregon  1868-1878,  p.  20. 
tOregonian,  August  15,  1873  ; Ibid,  August  18,  1873. 

||  Small,  Oregon  and  HOr  Resources,  p.  103. 


11 


than  a year  its  entire  capital  had  been  invested  in  real  estate  loans. 
The  following  year  the  capital  stock  was  doubled,  and  in  1878  it  had 
fully  $1,000,000  invested  in  mortgages  within  the  State.  The  business 
methods  of  the  company  were  characterized  by  extreme  conservatism 
and  no  loans  were  made  in  excess  of  40  per  cent  of  the  property 
valuation.* 

The  initiative  of  foreign  capitalists  was  likewise  responsible  for  the 
first  savings  bank  established  in  Oregon.  The  Oregon  & Washington 
Mortgage  Savings  Bank  was  opened  for  business  on  November  20,  1876, 
with  a capital  of  $300,000  fully  paid  in.  Though  the  capital  was  largely 
supplied  by  Scotch  financiers,  there  were  thirty-one  resident  shareholders 
in  Oregon  and  Washington.  The  aim  was  to  loan  only  on  real  estate 
in  the  Pacific  Northwest  and  to  receive  deposits  for  investment  in  mort- 
gage securities.  As  a matter  of  fact  the  operations  of  the  bank  were 
largely  confined  to  the  State  of  Oregon. t 

Two  years  after  the  founding  of  the  first  savings  bank  the  Bank 
of  British  North  America  opened  a branch  in  Portland  and  during  the 
next  two  years  three  savings  banks,  the  Portland  Savings  Bank,  the 
Metropolitan  Savings  Bank,  and  the  Willamette  Savings  Bank  began 
business,  t 

The  period  from  1876-1880  might  therefore  be  characterized  as 
the  savings-bank  period,  and  the  aim  seemed  to  be  to  utilize  foreign 
capital  as  well  as  the  smaller  savings  of  depositors  to  make  invest- 
ments in  real  estate  mortgages. 

In  1878  the  three  original  banks  of  Portland  had  a working  capital 
including  deposits  of  $4,500,000.  During  the  year  1878  the  fourth 
bank — a branch  of  the  Bank  of  British  North  America — began  operations 
in  Portland.  Outside  of  the  metropolis  there  were  three  other  banking 
institutions  and  the  combined  capital  of  the  seven  non-national  banks 
was  $643,225,  and  their  deposits  were  $1,489,547.11 

If  to  these  figures  we  add  the  resources  of  the  First  National  Bank 
in  Portland — capital  and  surplus  of  $583,924  and  deposits  of  $707,825.24 
— the  banking  capital  of  the  State,  including  deposits,  was  in  the 
neighborhood  of  three  millions  of  dollars.  No  reliable  estimate  can  be 
formed  of  the  loans  made  by  private  and  joint  stock  banks,  since  these 
figures  are  omitted  from  the  comptroller’s  report,  but  the  loans  and 
discounts  of  the  First  National  Bank  of  Portland  amounted  to  $867,493.37. 
In  1878  the  population  of  Portland  was  estimated  at  20,000  and  that 
of  the  State  at  156,000J 

The  organization  of  three  savings  banks  during  the  years  1878-1880 
increased  very  considerably  the  banking  resources  of  the  State.  In 
1880  there  were  fifteen  private  and  joint-stock  banks  in  Oregon  with 
an  aggregate  capital  of  $1,245,208  and  deposits  of  $1,033,103.  To  these 

*Reid,  Progress  of  Portland  and  Oregon , 1868-1878,  p.  20 ; Scott,  History  of 
Portland,  p.  404  ; Oregonian,  November  12,  1876  ; Ibid,  January  1,  1895. 

t Oregonian,  November  15,  1876;  Reid,  Progress  of  -Portland  and  Oregon, 
1868-1878,  p.  20  ; Scott,  History  of  Portland,  p.  404. 

JScott,  History  of  Portland,  p.  404. 

\\ Report  of  Comptroller  of  Currency,  1879,  p.  107. 

ft  Reid,  Progress  of  Portland  and  Oregon,  1868-1878,  p.  2. 


12 


must  be  added  the  resources  of  the  one  national  bank — capital  and 
surplus  of  $607,887.57  and  deposits  of  $707,630.02— which  brings  the 
available  banking  capital  of  the  State  up  to  $3,593,000.  The  population 
of  Oregon  in  1880  was  174,768. 

Just  before  the  era  of  railroad  construction  and  of  national  bank 
organization  following  1882  the  resources  of  the  twenty  trust  companies, 
private  and  joint  stock  banks,  other  than  national,  were  represented 
by  a capital  of  $951,542  and  deposits  of  $2,915,865.  Adding  the  resources 
of  the  one  national  bank  we  have  a combined  capital  of  $1,201,542  and 
deposits  of  $3,949,096.27.  Comparing  these  figures  with  those  of  1878 
the  most  noticeable  fact  is  the  rapid  increase  in  deposits.  While  the 
capital  of  all  banks  increased  but  33.6  per  cent  during  the  years  1878- 
1881,  the  deposits  were  more  than  doubled.  This  rapid  rate  of  increase 
was  undoubtedly  due  to  the  influence  of  the  savings  banks  organized 
during  the  years  1878-1880  and  the  rates  of  interest  offered  to  attract 
deposits.  The  customary  rate  was  6 per  cent  on  one-year  certificates 
while  on  time  deposits  of  from  four  to  nine  months  from  4 to  5 per 
cent  was  allowed.* 

The  organization  of  new  banks  and  the  increase  in  banking  capital 
did  not  operate  to  reduce  interest  rates  very  considerably.  Rates  for 
all  classes  of  loans  remained  high  and  business  men  complained  that 
the  industrial  development  of  the  country  was  hampered  by  the  lack 
of  capital.  Evidently  the  demand  for  loanable  funds  outran  the  supply. 
Bank  discounts  on  short-time  commercial  paper  were  made  at  1 per  cent 
a month  to  regular  customers;  but  excessive  commissions  were  charged 
outsiders  on  long-time  loans  on  real  estate  and  industrial  security, 
who  were  compelled  to  negotiate  loans  through  brokers  and  loan  agencies. 
In  1874  money  was  offered  for  “outside”  loans  at  20  per  cent  for  one 
or  two  years  and  the  usual  rates  at  which  “street”  loans  were  executed 
were  from  1V2  to  2 per  cent.t 

In  1876  it  was  said  that  rates  of  interest  were  so  high  that  men 
could  not  afford  to  invest  in  enterprises  which  promised  only  a remote 
return,  such  as  buildings,  mills,  factories — to  say  nothing  of  railway 
and  canal  improvements.  “It  is  claimed,”  said  a writer  in  the  Oregonian 
of  November  2,  1876,  “that  no  man  can  buy  a farm  in  the  State  and 
pay  the  usual  interest  rate  with  a hope  of  reaping  a substantial  return 
for  his  work,  but  that  three-fourths  of  the  farms  purchased  in  this  way 
are  sold  on  foreclosures.”  From  this  it  would  appear  that  the  banks 
were  at  that  time  capable  of  rendering  little  industrial  service  to  the 
community  for  the  chief  industry  was  still  agriculture.  Interest  rates 
may  not  have  been  too  high  for  the  supply  of  capital  but  they  were 
obviously  too  high  for  the  prosperity  of  the  State  when  lending  promised 
larger  returns  than  investments  in  permanent  improvements,  and  that, 
too,  in  a country  with  vast  undeveloped  resources. 

In  January,  1877,  the  leading  banks  of  San  Francisco  reduced  rates 
on  ordinary  discounts  to  three-fourths  of  1 per  cent  a month  and  similar 

*Oregonian,  August  12,  1876  ; Ibid,  February  11,  1885,  advertisement. 

f Oregonian , January  20,  1874  ; Ibid,  January  13,  1874  ; Ibid,  January  30,  1874. 

13 


action  was  expected  from  the  Portland  banks,  but  no  such  reduction 
was  made.* 

Interest  rates  not  only  remained  high  but  there  was  a noticeable 
scarcity  of  capital.  It  was  thought  by  some  that  the  usury  laws  of 
the  State  were  responsible  for  the  lack  of  accommodations  to  borrowers, 
since  they  operated  to  prevent  rates  from  being  fixed  in  the  open 
market  and  drove  business  into  the  loan  agencies  where  higher  than 
market  rates  were  charged  under  the  guise  of  a bonus  or  a commission. 
An  attempt  was  made  in  the  autumn  of  1876  to  repeal  the  usury  laws 
but  a bill  introduced  for  that  purpose  failed  of  passage.t 

In  addition  to  the  legal  rate  of  1 per  cent  a month  a commission 
of  from  2 to  6 per  cent  was  still  charged  on  any  except  short  time 
loans  on  “gilt-edge”  security. t 


III. 

The  years  1879-1883  might  be  characterized  as  the  era  of  railroad 
building  in  Oregon.  During  this  period  the  Villard  syndicate  of  American 
and  European  capitalists  was  formed  to  complete  the  construction  of 
the  Northern  Pacific  and  to  harmonize  its  interests  with  those  of  the 
Oregon  roads  by  providing  for  joint  management.  By  1883  the  Northern 
Pacific  had  been  completed  to  Portland  and  the  Columbia  River  at 
Kalama;  and  the  lines  of  the  Oregon  Railway  & Navigation  Company 
had  been  extended  eastward  into  the  Inland  Empire;  the  Oregon  Central 
was  completed  to  Eugene;  and  the  Oregon  & California  was  finished  to 
the  southern  line  of  Douglas  County.  II 

These  improvements  in  the  means  of  transportation  tended  not  only 
to  facilitate  trade  and  to  attract  immigration  but  resulted  in  the  invest- 
ment of  outside  capital  in  the  State.  It  was  estimated  that  during  the 
year  1882  alone  more  than  $14,000,000  were  expended  for  railway  con- 
struction in  the  Pacific  Northwest.il 

These  developments  tended  directly  and  indirectly  to  enhance  the 
importance  of  banking. 

Improved  transportation  facilities  helped  at  the  same  time  to  decide 
the  supremacy  of  Portland  as  the  industrial  and  jobbing  center  of  the 
State.  Before  the  era  of  railway  construction  the  chief  city  of  Oregon 
was  by  no  means  important  as  a wholesale  center.  She,  herself,  depended 
largely  on  San  Francisco,  and  the  smaller  towns  of  Oregon  and  Wash- 
ington could  send  to  San  Francisco  quite  as  easily  as  to  Portland.  The 
metropolis  was  at  most  only  a way-station  or  forwarding  point.  The 
completion  of  a transcontinental  road  to  the  northwest  as  well  as  the 
shorter  lines  of  the  Oregon  Railway  & Navigation  Company,  the  Oregon 
Central,  Oregon  & California,  etc.,  gave  Portland  at  the  same  time 
independent  connections  with  the  east  and  with  interior  points  in  the 

* Oregonian,  December  28,  1876. 

t Oregonian , September  21,  1876;  Ibid,  October  24,  1876. 

tSee  Annual  Review  of  the  Commercial,  Financial,  and  Industrial  Interests 
of  Oregon  for  the  Year  1877. 

|| Bancroft,  History  of  Oregon,  Vol.  II,  pp.  704-705. 

Oregonian,  January  1,  1883. 


14 


State,  and  it  began  at  once  to  develop  into  an  independent  market. 
The  importance  of  Portland  as  a jobbing  point  settled  definitely  its 
position  as  financial  center  of  the  northwest.  Country  banks  were  now 
obliged  to  provide  with  facilities  for  making  remittances  to  wholesalers 
in  Portland  and  to  collect  checks,  drafts  given  in  exchange  for  grain, 
wool,  cattle  or  fruits  which  were  usually  marketed  there  and  paid  for 
in  Portland  exchange.  No  bank  in  the  interior,  therefore,  opened  its 
doors  without  first  arranging  for  a correspondent  in  the  metropolis  and 
eastern  capital  sought  investment  in  the  northwest  through  the  agency 
of  Portland  banks.  At  this  period  perhaps  a large  share  of  the  money 
that  circulated  in  the  Pacific  Northwest  was  distributed  from  Portland. 
If  the  manufacturer  or  exporter  bought  raw  materials  from  the  producers 
of  the  Inland  Empire  or  the  Willamette  Valley,  payments  were  usually 
made  through  the  banks  of  Portland.  Country  banks  also  depended 
largely  on  the  metropolis  to  make  advances  of  money  to  move  the  crops. 

The  funds  thus  distributed  were  paid  out  for  labor  and  sooner  or 
later  found  their  way  into  the  hands  of  retailers.  In  turn  they  were 
used  by  country  merchants  to  purchase  Portland  exchange  with  which 
to  satisfy  their  obligations  to  wholesalers.  The  drafts  thus  received  by 
manufacturers  and  wholesalers  were  again  deposited  in  city  banks, 
there  to  await  an  opportunity  to  begin  another  debt-paying  tour.  If 
Portland  banks  advanced  capital  for  an  industrial  enterprise,  a mill  or 
factory,  anywhere  in  the  State  a large  share  of  it  came  back  to  the 
metropolis  sooner  or  later  for  the  purchase  of  machinery  and  tools. 
This  was  only  the  natural  consequence  of  its  position  as  industrial 
and  jobbing  center  of  the  Pacific  Northwest.  Through  the  natural 
developments  of  trade  Portland  became  at  the  same  time  the  clearing 
and  credit  center  of  the  State,  and  henceforth  the  development  of  banking 
in  Oregon  followed  pretty  closely  the  progress  of  its  chief  banking 
center. 

The  years  following  1882  marked  the  improvement  and  rapid  extension 
of  banking  facilities  into  all  parts  of  the  State.  It  was  especially  an 
era  of  national  bank  organization.  At  the  close  of  the  year  1881  there 
was  only  one  national  bank  in  Oregon,  but  by  1886  the  number  had 
increased  to  18  with  a combined  capital  of  $1,320,000  and  deposits  of 
$3,692,000.  In  the  city  of  Portland  the  Portland  National,  the  Ainsworth 
National,  Commercial  National  and  the  Merchants  National  were  added 
to  the  list;  and  these,  together  with  the  First  National,  Ladd  & Tilton, 
Bank  of  British  Columbia  and  the  London  and  San  Francisco  Bank, 
which  had  established  a branch  in  Portland  in  1882,  did  a large  share 
of  the  banking  business  of  Oregon.  Some  of  these  were  represented 
by  branches,  offices  or  agents  in  other  parts  of  the  State.* 

But  this  period  was  characterized  by  the  rapid  extension  of  banking 
facilities  into  the  smaller  communities  as  well.  The  oldest  banking 
institutions  in  Lane  County  were  established  by  Hovey,  Humphrey  & Co. 
in  1882,  and  Hendricks  & Eakin  in  1884,  while  between  the  years  1881 

* Scott,  History  of  Portland,  p.  404. 


15 


and  1886,  national  banks  were  organized,  in  Albany,  Astoria,  Baker  City, 
East  Portland,  Eugene,  Island  City,  McMinnville,  Pendleton,  Salem  (2), 
The  Dalles  (2),  and  Union.  An  estimate  furnished  by  the  comptroller 
of  the  currency  places  the  banking  resources  of  Oregon  in  1889  at  the 
following  figures:  Aggregate  capital  of  all  banks  $12,481,634  or  a per 
capita  of  $43.18.  Of  this  total  the  national  banks  represent  a per  capita 
of  $40.87;  State  banks,  $1.83,  and  private  banks,  $0.48.  The  figures  for 
State  and  private  banks  are  manifestly  too  low,  and  the  discrepancy 
results  from  the  failure  of  non-national  banks  to  make  report  of  their 
condition,  not  being  required  to  do  so  by  law.  That  these  statistics 
are  untrustworthy  is  shown  by  a comparison  with  the  estimates  furnished 
by  the  comptroller  for  the  following  year.  The  capital  (including 
deposits)  of  all  banks  was  placed  at  $19,263,874  and  the  population  at 
312,490.  The  ratio  of  capital  to  population  was,  therefore,  for  all  banks 
$61.64;  for  national  banks,  $44.44;  State  banks,  $3.41,  and  private  banks, 
$13.79.  The  loans  and  discounts  of  the  37  national  banks  were  fixed 
at  $11,059,753.88,  but  similar  estimates  are  lacking  for  State  and  private 
banks. 

In  view  of  the  fact  that  the  figures  for  State  and  private  banks 
are  unreliable  too  much  significance  must  not  be  attached  to  a comparison 
with  other  states.  The  capital  of  all  banks  in  New  York  State,  however, 
represented  at  the  same  date  a per  capita  of  $272.96.  For  national 
banks  the  per  capita  was  $82.65;  for  State  banks,  $38.99;  for  loan 
and  trust  companies,  $42.77 ; for  savings  banks,  $107.78 ; for  private 
banks,  $0.77.  This  comparison  will  serve  to  indicate  roughly  the  larger 
relative  importance  of  national  banks  in  Oregon,  for  while  the  per 
capita  of  capital  for  all  banks  was  less  than  one-fourth  of  that  in  New 
York  State,  the  ratio  of  capital  of  national  banks  to  population  was 
one-half.  The  high  relative  importance  of  national  banks  to  Oregon 
is  further  borne  out  by  a comparison  with  the  neighboring  State  of 
California,  where  in  1890  the  capital  of  all  banks  represented  a per 
capita  of  $206.32  while  that  of  national  banks  was  only  $23.16. 

The  total  capital  employed  by  Portland  banks  in  1890  was  estimated 
at  $9,760,000,  of  which  $4,310,000  was  in  local  banks  and  $5,450,000  in 
branches  of  foreign  banks,  like  the  Oregon  & Washington  Savings  Bank, 
Bank  of  British  Columbia,  and  the  London  and  San  Francisco  Bank. 
If  to  this  capital  be  added  a surplus  of  $3,634,345  the  banking  capital 
of  the  metropolis  amounted  to  $13,394,340,  or  $537  per  capita.* 

In  1889  the  Portland  banks  seeing  that  the  metropolis  had  become 
the  financial  center  of  Oregon  and  that  checks  and  drafts  from  all  parts 
of  the  State  were  collected  through  the  agency  of  city  banks,  organized 
the  Portland  Clearing  House  Association  for  the  easier  settlement  of 
balances  against  each  other.  The  original  membership  of  the  clearing 
house  association  was  composed  of  the  Ainsworth  National,  the  Com- 
mercial National,  the  First  National,  Ladd  & Tilton,  London  and  San 
Francisco  Bank,  Merchants  National,  Northwest  Loan  & Trust  Company, 

*Oregonian,  January  1,  1891. 


16 


Oregon  National  and  the  Portland  Savings  Bank.  During  the  first 
calendar  year  of  1890  the  clearings  amounted  to  $93,624,070.03.  Balances 
are  regularly  paid  in  cash  or  clearing  house  certificates  for  which  cash 
has  been  deposited.  An  exception  was  made,  as  we  shall  see,  during 
the  panic  of  1907  when  the  clearing  house  certificate  represented  not 
specie  but  acceptable  securities  deposited  with  clearing  house  officials.* 
The  method  employed  by  Portland  banks  for  settling  balances  at 
the  clearing  house  should  not  be  overlooked  when  comparisons  are  made 
with  the  volume  of  transactions  in  other  clearing  house  centers.  Balances 
are  often  settled  by  checks  of  the  clearing  house  manager  or  debtor 
banks  or  by  drafts  on  larger  money  centers.  Such  drafts  are  usually 
returned  by  creditor  banks  on  the  following  day  and  are  cleared  in 
precisely  the  same  way  as  new  items.  This  practice  tends  to  swell 
abnormally  apparent  volume  of  transactions.  The  following  figures 
represent  the  transactions  of  the  Portland  clearing  house  for  the  past 
six  years: 


Y ear.  C leavings. 

1902  $154,320,103.09 

1903  175,596,622.53 

1904  189,051,469.92 


Year.  Clearings. 

1905  $228,402,712.69 

1906  281,170,796.26 

1907  353,851,629.80 


The  years  following  1882  witnessed  but  slight  reduction  in  interest 
rates  despite  the  increase  in  banking  facilities.  In  1881  the  prevailing 
rates  for  bank  loans  were  from  10  to  12  per  cent  and  the  security  had 
to  be  of  the  first  order. t 

In  1880  the  laws  had  been  so  amended  as  to  fix  the  legal  rate  of 
interest  at  8 per  cent  and  to  allow  a maximum  of  10  per  cent  by  special 
agreement.  This  statute  also  legalized  any  agreement  between  debtor 
and  creditor  by  which  either  party  is  bound  to  pay  the  taxes  on  debts 
provided  the  rate  of  interest  does  not  exceed  8 per  cent  per  annum,  t 
This  legislation,  however,  failed  to  reduce  rates  to  the  borrower  in  any 
material  degree  and  may  in  some  cases  have  operated  to  raise  them  by 
introducing  an  element  of  risk  for  those  who  loaned  at  excessive  rates. 
At  any  rate  the  years  1883-1885  were  characterized  by  a scarcity  of 
loanable  funds  and  high  interest  rates.  The  effect  of  the  stringency  was 
felt  early  in  the  year  1883  and  was  explained  by  the  fact  that  wholesalers, 
manufacturers,  and  other  business  men  had  realized  an  unexpected 
expansion  in  the  volume  of  business  and  were  obliged  to  call  upon  the 
banks  for  increased  accommodations.  This  demand  was  at  first  met  by 
the  organization  of  new  banks  and  the  growth  of  deposits  due  to 
immigration.  II 

During  the  year  1884,  however,  the  stringency  in  the  money  market 
was  aggravated  by  further  causes.  The  depression  which  reached  all 
parts  of  the  country  had  a serious  effect  on  business  generally  and  on 
banking  in  particular.  The  failure  of  immigration  to  the  Willamette 

*Oregonian , January  1,  1895  ; Ibid , January  1,  1891. 

f Oregonian,  January  1,  1881. 

X Statutes  of  Oregon  1880 , p.  17. 

||  Oregonian,  January  1,  1884. 


17 


Valley  was  accompanied  by  a decline  in  the  number  who  came  to  the 
Inland  Empire  and  these  developments  tended  to  check  the  growth  of 
deposits. 

Railway  construction  which  had  been  carried  on  so  actively  during 
the  years  1882-1883  ceased  altogether  except  on  the  Oregon  and  Cali- 
fornia lines  in  Southern  Oregon  and  on  the  Baker  City  branch  in  the 
eastern  part  of  the  State.  There  was  a feeling  of  uneasiness  in  the 
financial  world,  money  lenders  called  in  their  loans  and  refused  to  make 
further  advances.  Foreign  capitalists  in  particular  were  adverse  to 
lending  on  real  estate  security,  alleging  that  the  mortgage  tax 
law  then  in  operation  in  Oregon  was  an  obstacle  to  new  loans.  This 
measure,  it  was  charged,  had  been  passed  by  representatives  of  the 
farming  class  in  the  interior  and  had  proved  to  be  very  burdensome  to 
the  capitalist  and  money-lender.* 

It  is  highly  probable,  however,  that  the  hardships  of  the  money-lender 
were  only  temporary  for  interest  rates  were  soon  adjusted  so  as  to 
shift  the  burden  of  the  tax  to  the  borrower. 

The  farming  class  were  perhaps  most  seriously  affected  by  the 
stringency  in  the  money  market.  Farm  loans  were  the  first  to  be  called 
in  and  the  restriction  of  credit  had  a damaging  effect  on  the  market 
for  farm  products.  Grain  buyers  in  particular,  unable  to  obtain  needed 
accommodations  at  the  banks,  were  compelled  to  do  a close  business. 
They  purchased  only  for  immediate  delivery  and  sold  at  once  and 
as  a consequence  there  was  little  activity  in  the  grain  market.  The 
money  to  work  on  was  obtained  by  quick  sales  and  the  operations  of 
speculators  were  limited  by  the  amount  of  their  own  capital.  Thus  the 
farming  class  were  not  only  denied  additional  accommodations  by  money 
lenders  but  were  forced  to  meet  interest  payments  on  long-standing 
mortgages  while  low  prices  for  farm  products  prevailed.  The  scarcity 
of  loanable  funds  and  high  rates  of  interest  imposed  a hardship  indirectly 
on  all  classes  and  operated  to  check  the  industrial  development  of  the 
community.  It  retarded  the  growth  of  manufactures  which  had  been 
established  during  the  early  eighties  and  kept  the  State  wholly  dependent 
on  the  east  for  many  articles  of  common  consumption  which  might  have 
been  produced  to  advantage  at  home. 

Toward  the  end  of  1885  the  stringency  in  the  money  market  was 
partly  relieved.  “Interior  debtors  began  living  more  within  their  means 
and  had  money  to  pay  their  long-standing  debts. ”t 

The  feeling  of  uneasiness  among  business  men  was  partly  allayed 
and  capitalists,  once  in  possession  of  money,  did  not  hoard  it  but  were 
willing  to  make  advances  on  good  security  exercising  of  course  proper 
caution  in  placing  their  loans.  Increased  production  and  renewed  immi- 
gration brought  more  money  into  the  State.  Foreign  capitalists  of  course 
continued  to  restrict  their  loans  but  did  not  press  their  customers.  The 
situation  was  so  much  relieved  that  in  1889  money  might  be  had  on 
mortgage  loans  at  from  8 to  10  per  cent  and  to  farmers  who  had  paid 


*Oregonian,  January  1,  J8S4. 
jOregonian,  January  1,  1886. 


18 


during  the  lean  years  of  1883-1885  as  much  as  1 to  2 per  cent  a month 
these  rates  seemed  moderate.* 

The  decade  closed,  however,  with  a shortage  in  the  local  money 
market.  The  stringency  was  attributed  to  the  fact  that  much  of  the 
loanable  funds  had  been  drawn  from  England  and  Scotland  where 
the  supply  was  formerly  in  excess  of  the  demand.  Interest  rates  had 
been  low  and  capital  had  sought  investment  in  the  far  west  where 
more  liberal  returns  were  promised.  About  the  end  of  the  year  1889, 
however,  the  demand  for  loans  in  England  was  considerably  strengthened 
on  account  of  a general  revival  in  trade,  and  interest  rates  rose  about 
2 per  cent.  As  a consequence  banks  and  money  brokers  that  had  relied 
on  foreign  capital  found  the  supply  had  failed  them.t 

The  stringency  which  made  itself  felt  late  in  the  year  1889  was 
aggravated  by  further  developments  during  the  year  1890.  There  was 
first  of  all  considerable  speculation  in  real  estate  and  undue  inflation 
of  land  values  particularly  in  and  around  cities.  It  was  an  era  of 
systematic  town-booming.  Speculation  in  real  estate  had  operated  to 
create  an  abnormal  and  artificial  demand  for  mortgage  loans.  Another 
factor  which  operated  indirectly  to  increase  the  financial  difficulties  was 
the  inability  of  the  railroads  to  handle  the  unusually  large  grain  crop 
of  the  northwest.  Grain  buyers  had  laid  out  vast  sums  of  money  in  the 
purchase  of  cereals,  and  were  kept  from  moving  and  marketing  the  crop.t 
Toward  the  close  of  the  year  1890  the  temporary  panic  in  the  east 
affected  the  local  money  market  and  a certain  amount  of  uneasiness 
caused  a run  on  some  of  the  local  banks.  These  were  met  without 
difficulty,  however,  and  no  failures  resulted.tl 

IV. 

The  years  1882-1890  we  have  characterized  as  the  period  of  national 
bank  organization,  but  the  next  ten  years  witnessed  a marked  decline 
in  the  number  of  national  banks.  In  1891  the  number  of  banks  organized 
under  national  laws  was  forty  and  during  the  year  1892  one  other  bank 
was  added  to  the  list.  By  1900,  however,  the  number  of  national  banks 
had  been  reduced  to  twenty-seven.  The  decline  was  due  to  the  failure 
of  some  six  banks  following  the  panic  of  1893,  the  voluntary  dis- 
solution of  a few,  and  the  amalgamation  or  absorption  of  others.  The 
capital  of  national  banks  had  also  been  reduced  from  $4,275,000  to 
$2,370,000  and  the  surplus  from  $802,000  to  $495,000;  the  loans  of 
national  banks  had  also  fallen  off  from  $12,006,000  to  $7,573,000.  On 
the  other  hand  the  deposits  of  national  banks  had  increased  from 
$9,673,000  to  $11,782,000,  and  the  outstanding  circulation  was  $958,000 
as  compared  with  $690,000  in  1891. 

The  comptroller’s  estimate  previously  referred  to  places  the  combined 
capital  of  all  banking  institutions  in  the  State  at  $17,426,323  in  the 

* Wealth  and  Resources  of  Oregon  and  Washington,  issued  by  Union  Pacific 
Railroad,  p.  77. 

f Oregonian , January  1,  1890. 

XOregonian,  January  1,  1891. 

||  Ibid. 


19 


year  1895.  The  estimated  population  of  Oregon  at  that  time  was  388,000. 
The  ratio  of  banking  capital  to  population  was,  therefore,  $44.91.  Of 
this  per  capita  $34.92  was  furnished  by  national  banks;  $2.80  by  State 
banks;  $6.29  by  savings  banks,  and  $0.90  by  private  banks.  New  York 
State  at  the  same  time  had  a banking  capital  of  $298.74  per  capita, 
and  for  California  the  corresponding  figure  was  $207.87. 

By  1900  the  population  of  the  State  had  increased  to  460,000  and 
the  banking  capital  was  estimated  at  $19,890,599,  or  $43.18  per  capita, 
$33.89  of  which  was  furnished  by  the  national  banks,  $8.90  by  State 
banks  and  $0.39  by  private  banks.  The  ratio  of  banking  capital  to 
population  in  New  York  State  at  the  same  time  was  $397.58.  If  we 
accept  the  comptroller’s  estimate,  then,  it  would  appear  that  the  banking 
capital  of  the  State  had  remained  practically  stationary  while  the  popula- 
tion had  increased  about  47  per  cent.  The  ratio  of  capital  to  population 
had  therefore  fallen  off  from  $61.64  to  $43.18. 

The  decline  in  the  importance  of  banking  during  the  decade  1890  to 
1900  and  the  dissolution  of  several  banking  institutions  can  be  accounted 
for  very  largely  by  the  reverses  which  followed  the  panic  of  1893 — 
the  severest  in  the  history  of  Oregon  banks.  During  the  preceding 
years  of  business  activity  banks  had  freely  extended  their  accommoda- 
tions to  merchants  and  manufacturers.  Opportunities  for  the  profitable 
employment  of  capital  in  the  wholesale  and  grain  trade  in  the  metropolis 
had  led  many  of  the  city  banks  to  offer  liberal  inducements  to  cbuntry 
banks  to  increase  their  balances.  At  the  same  time  Portland  banks 
were  extending  their  loan  and  discount  business  they  were  becoming 
heavily  indebted  to  country  correspondents.  During  the  era  of  town- 
booming  and  land  speculation  municipalities,  financial  institutions,  cor- 
porations, and  individuals  had  become  heavily  in  debt  to  eastern  capitalists. 
Large  sums  were  needed  to  develop  the  resources  and  to  promote  public 
improvements  and  the  State  had  drawn  heavily  on  eastern  capital. 
When  a new  enterprise  was  to  be  established  or  new  resources  utilized 
people  had  begun  to  contrive  methods  of  interesting  outside  capitalists. 
The  farming  class  and  owners  of  real  estate  in  particular  were  heavily 
indebted  to  eastern  and  foreign  holders  of  mortgages  on  both  farms 
and  city  property.* 

Early  in  the  summer  of  1893  business  was  noticeably  depressed, 
and  the  uneasiness  caused  by  reports  of  eastern  failures  and  the 
difficulties  encountered  by  the  government  in  maintaining  the  gold  reserve 
led  to  the  withdrawal  of  deposits  from  the  Portland  banks.  Business 
men  were  confident,  however,  that  the  banks  would  be  able  to  stand 
the  strain  until  the  autumn  sale  of  crops  and  the  seasonal  revival  of 
trade  would  relieve  the  situation.  On  the  27th  of  July,  however,  the 
Oregon  National  closed  its  doors  and  was  soon  followed  by  the  North- 
west Loan  & Trust  Company,  which  was  under  practically  the  same 
management.  Both  these  banks  had  been  conducted  by  George  B.  Markle 
and  associates  for  a number  of  years  before  the  panic.  Mr.  Markle 

* Oregonian,  January  1,  1904  ; Ibid,  January  1,  1907. 


20 


came  to  Portland  with  considerable  capital  and  soon  showed  an  active 
interest  in  the  development  of  Oregon  and  the  northwest.  He  was, 
however,  over-sanguine  and  daring  even  to  the  point  of  recklessness. 
A few  successful  investments  soon  won  him  a reputation  for  sound 
business  judgment  but  many  of  his  ventures  presently  took  a speculative 
turn.  During  the  financial  stringency  of  the  early  months  of  1893 
Mr.  Markle  found  himself  heavily  involved  and  to  save  his  credit  was 
forced  to  draw  on  the  resources  of  the  Oregon  National.  The  bank 
was  therefore  in  no  condition  to  meet  the  heavy  demands  of  its  depositors 
and  was  obliged  to  close  its  doors.* 

On  the  day  following  the  suspension  of  the  Oregon  National,  the 
Union  Banking  Company,  a new  institution  with  few  depositors,  also 
closed  its  doors;  and  a quiet  run  was  begun  on  other  banks  in  the  city. 
The  excitement  soon  subsided,  however,  and  business  men  continued  to 
make  deposits  as  usual.  Before  long,  however,  the  Commercial  National 
and  the  Portland  Savings  Bank,  allied  institutions  in  which  the  business 
community  had  the  greatest  confidence,  failed  to  open  for  business.  A 
series  of  bank  failures  such  as  this  seemed  to  threaten  a general 
suspension  of  payment  and  in  the  excitement  which  followed  even 
business  men  began  to  withdraw  their  deposits.  The  Ainsworth  National 
was  compelled  to  close  its  doors  temporarily,  but  the  other  banks  were 
able  to  weather  the  storm.  The  news  of  Portland  failures  soon  spread 
to  interior  towns  and  numerous  banking  institutions  all  over  the  State 
were  forced  to  suspend  for  a time  or  even  permanently.  Among  the 
national  banks  that  suspended  payment  were  the  First  National  Bank  of 
Baker  City,  First  National  and  The  Dalles  National  of  The  Dalles,  First 
National  of  Pendleton,  First  National  of  Arlington,  and  the  Linn  County 
National  of  Albany.  The  United  States  Banking  Company  with  branches 
located  at  Gervais,  Sheridan,  and  Junction  City  became  insolvent  but 
its  failure  had  little  effect  on  other  financial  institutions  although  it  was 
indebted  to  Portland  banks  for  moderate  sums.t 

The  majority  of  the  suspended  banks  subsequently  resumed  business, 
however.  Following  the  suspension  of  the  First  National  Bank  at  The 
Dalles  the  comptroller  of  the  currency  sent  thither  Mr.  Lionel  Stagge, 
the  newly  appointed  bank  examiner  for  Oregon.  Through  the  inter- 
vention of  Mr.  Stagge  funds  were  secured  from  creditors  and  the 
depositors  were  induced  to  enter  into  an  agreement  by  which  the  bank 
was  enabled  to  reopen  its  doors  in  three  weeks.  Mr.  Stagge  subsequently 
went  to  Portland  and  was  instrumental  in  bringing  about  an  arrange- 
ment by  which  the  Ainsworth  National  and  the  Oregon  National  resumed 
business.? 

The  Oregon  National  was  among  the  first  to  reopen  but  on  December 
8 the  county  grand  jury  returned  an  indictment  against  Geo.  B.  Markle, 
president,  D.  F.  Sherman,  cashier,  and  Penumbra  Kelly,  sheriff  of 
Multnomah  County,  for  their  failure  to  pay  over  to  the  county  treasurer 

*Pacific  Banker  and  Investor,  August,  1893,  p.  43  ; Oregonian,  January  1,  1896. 
t Pacific  Banker  and  Investor,  March,  1893,  p.  42. 
tPacific  Banker  and  Investor,  September,  1893,  p.  51. 


21 


about  $148,000  of  county  funds  and  this  caused  the  bank  to  close  its 
doors  permanently.  Mr.  Kelly  as  sheriff  had  collected  the  taxes  and 
deposited  the  proceeds  with  the  Oregon  National  and  the  Northwest 
Loan  & Trust  Company,  which  were  separate  corporations  but  under 
the  same  controlling  interest,  George  B.  Markle  being  president  of  both. 
It  happened  that  Mr.  Markle  was  also  one  of  Penumbra  Kelly's  bonds- 
men. When  the  bank  suspended  in  July,  1893,  Sheriff  Kelly  had  nearly 
$149,000  on  deposit  with  the  Oregon  National,  which  sum  had  been 
increased  to  $160,000  by  an  excess  of  deposits  over  checks  following 
the  reopening  of  the  bank.  The  sheriff  had  also  deposited  with  the 
Northwest  Loan  & Trust  Company  something  like  $169,000.  Mr.  Kelly 
feared  to  withdraw  the  public  funds  lest  he  should  cause  the  banks  to 
close  their  doors  again.  Public  opinion,  however,  demanded  the  immediate 
deposit  of  the  funds  with  the  county  treasurer  under  threat  of  indict- 
ment. During  the  week  prior  to  the  action  of  the  grand  jury — which 
was  evidently  anticipated — county  funds  were  withdrawn  and  the  sheriff's 
balance  with  the  Oregon  National  was  reduced  to  $125,000.  The  deple- 
tion of  the  bank’s  cash  resources  together  with  the  indictment  of  its 
officials  caused  its  permanent  suspension.* 

The  panic  of  1893  was  also  responsible  for  the  failure  of  one  of 
Portland’s  most  substantial  savings  banks.  This  was  the  Portland 
Savings  Bank  which  began  business  as  early  as  1880.  It  was  the 
intention  of  the  organizers  at  the  outset  to  conduct  a strictly  savings 
bank  business  and  aimed  principally  to  accommodate  those  of  small 
means.  But  the  exigencies  of  the  case  forced  the  bank  to  do  a com- 
mercial business  and  it  came  in  time  to  handle  some  heavy  deposit 
accounts.  In  1886  the  business  of  the  bank  was  divided  into  two 
departments  with  separate  officials  but  the  stockholders  remained  the 
same.  The  officers  of  the  bank  were  conservative  business  men  and 
its  affairs  were  never  recklessly  managed,  but  it  was  nevertheless  com- 
pelled to  close  its  doors  during  the  panic.  The  bank  of  course  subse- 
quently reopened  but  it  closed  again  in  November,  1894,  and  its  affairs 
were  wound  up  by  a receiver.  Its  failure  was  due  largely  to  an  attempt 
to  do  a commercial  business  with  savings  deposits.  While  the  bank 
paid  rather  liberal  rates  of  interest  on  savings  accounts,  it  nevertheless 
continued  to  make  commercial  loans,  t 

The  history  of  the  panic  of  1893  serves  to  emphasize  the  peculiar 
relation  of  the  Oregon  banks  to  the  eastern  money  market  at  this  time. 
Apparently  not  a single  failure  in  Portland  could  be  traced  directly  to 
similar  failures  in  the  east.  Undoubtedly  the  suspension  of  eastern 
banks  was  largely  responsible  for  the  feeling  of  general  uneasiness 
which  caused  the  initial  runs  on  local  banks.  As  we  have  already 
indicated  many  municipalities  and  financial  institutions  were,  at  this 
time,  heavily  indebted  to  eastern  capitalists  and  the  Oregon  banks  carried 
only  moderate  balances  with  eastern  correspondents.  Failures  in  the 
money  centers  of  the  east,  therefore,  affected  the  Portland  banks  favor- 

*Pacific  Banker  and  Investor,  January,  1894,  pp.  40-41. 

t Oregonian , January  1,  1896  ; Ibid,  January  1,  1886. 


22 


ably  if  at  all.  It  may  be  said  with  equal  confidence  that  few,  if  any, 
of  the  country  banks  suspended  on  account  of  the  failure  of  Portland 
banks  to  render  aid.  Although  banks  in  the  interior  made  heavy  demands 
on  city  correspondents  these  demands  were  promptly  met,  and  some  of 
the  stronger  institutions  even  made  considerable  advances  to  save  their 
country  correspondents  from  ruin.  It  is  stated  that  one  of  the  older 
banks  of  Portland  distributed  $2,000,000  among  corresponding  banks  in 
interior  towns.  Some  of  these  advances  were  in  the  nature  of  loans 
and  the  solvency  of  country  banks  was  in  some  measure  directly  dependent 
on  the  soundness  of  city  correspondents.* 

V. 

The  period  of  industrial  activity  following  the  year  1900  resulted  in 
the  organization  of  new  banks  of  every  description  and  the  rapid 
extension  of  banking  facilities  into  the  newer  communities  of  the  State. 
The  number  of  national  banks  in  Oregon  increased  from  27  in  1900 
to  75  in  1910,  while  the  capital  was  increased  from  $2,395,000  in  1900 
to  $7,286,000  in  1910.  During  the  same  period  the  surplus  increased 
from  $502,000  to  $2,987,606.99,  and  deposits  from  $13,567,000  to  $50,- 
170,024.62.  Loans  and  discounts  were  $24,862,000  in  1900  as  compared 
with  $39,159,000  in  1910. 

Under  the  new  banking  laws  of  1907  State  and  private  as  well  as 
national  banks  are  required  to  furnish  a report  of  their  condition  at 
stated  intervals.  On  June  30,  1910,  according  to  the  report  of  the  State 
Bank  Examiner,  there  were  in  Oregon  151  State  and  private  banks  and 
75  national  banks  with  a combined  capital  of  $14,851,094.50.  To  this 
should  be  added  a surplus  of  $4,660,092.50  and  undivided  profits  of 
$2,218,007.51.  The  total  banking  capital  of  the  State  is,  therefore,  in 
the  neighborhood  of  $21,729,000.  The  aggregate  deposits  of  all  banks 
were  $101,173,000  and  loans  and  discounts  were  reported  at  $70,854,000. 
The  estimated  population  of  Oregon  at  the  present  time  is  600,000  and 
the  ratio  of  banking  capital  to  population  is  therefore  $36.21.  The 
per  capita  of  bank  deposits  is  $168.62  and  of  loans  and  discounts 
$118.09.  The  national  bank  circulation  is  $3,956,995,  or  about  26  per 
cent  of  the  capital  stock. 

The  financial  panic  of  1907  resulted  in  the  general  suspension  of  pay- 
ments by  Oregon  banks  but  caused  the  failure  of  only  two  institutions 
with  comparatively  small  capital,  which  had  resorted  to  rather  question- 
able methods.  The  banks  in  Portland  and  even  in  some  of  the  smaller 
towns  resorted  to  the  use  of  clearing  house  certificates,  and  these  money 
substitutes  formed  a considerable  portion  of  the  circulating  medium  for 
two  or  three  months.  Bank  holidays  were  also  declared  by  the  Governor 
from  October  29  to  December  16,  but  on  the  latter  date  the  Portland 
banks  began  paying  depositors  in  full,  and  were,  therefore,  among  the 
first  in  any  large  city  of  the  United  States  to  resume  specie  payment. 

*Oregonian,  January  1,  1896  ; Ibid,  January  1,  1902  ; Oregonian  Handbook, 
189Jf,  p.  138. 


23 


The  effects  of  the  panic  were  more  severely  felt  because  it  came  at 
a time  when  large  sums  were  needed  by  Portland  banks  and  correspond- 
ents in  the  interior  to  move  the  crops,  which  proved  to  be  the  largest 
in  the  history  of  the  State.  During  the  winter  and  spring  of  1907 
the  Oregon  banks  had  increased  their  balances  in  Chicago  and  New 
York  and  allowed  large  sums  to  accumulate  in  the  hands  of  eastern 
correspondents.  The  relation  between  the  Oregon  banks  and  the  eastern 
money  market  was  therefore  essentially  different  from  what  it  was  in 
1893.  The  banks  of  the  State  had  just  begun  to  draw  upon  these 
resources  to  meet  the  regularly  recurring  demand  for  harvest  money 
when  the  disturbance  in  New  York  precipitated  the  panic.  When  the 
banks  in  the  reserve  centers  of  the  east  suspended  payment  the  banks 
of  the  west  were  left  to  weather  the  storm  on  their  own  resources. 
During  the  continuance  of  legal  holidays,  which  were  declared  by  the 
Governor  to  enable  banks  to  secure  remittances  from  the  east  and  to 
replenish  their  cash  reserves,  the  banks  remained  open  but  refused  to 
meet  the  demands  of  depositors  or  paid  only  moderate  sums  at  their 
own  discretion.  Banks  which  did  not  refuse  the  demands  of  depositors 
altogether  regularly  placed  a limit  on  the  amount  they  could  draw. 
When  the  banks  resumed  payment  on  December  16  there  was  no  marked 
departure  from  the  ordinary  run  of  business.  Those  who  wanted  gold 
were  able  to  obtain  it  readily  but  there  was  no  considerable  withdrawal 
of  funds  and  deposits  were  regular  and  heavy.* 

In  order  to  economize  their  cash  resources  clearing  house  loan 
certificates  were  issued  to  the  Portland  banks  and  were  used  for  settling 
balances  against  each  other.  This  was  the  first  time  the  Portland  banks 
had  resorted  to  the  use  of  credit  devices,  for  up  to  this  time  clearing  house 
obligations  had  invariably  been  paid  in  coin.  In  all  about  $1,000,000  of 
these  certificates  were  issued  for  this  purpose,  but  $690,000  in  all  had 
been  retired  by  December  26,  1907.  Of  the  remainder  still  outstanding 
$225,000  had  been  issued  to  the  Merchants  National  Bank  before  its 
suspension,  and  could  be  retired  only  when  the  bank  resumed  operations 
or  had  its  affairs  wound  up  by  a receiver.  Only  about  $85,000  worth 
of  loan  certificates  were  in  use  by  the  other  banks  on  January  1,  1908. t 
In  addition  to  the  clearing  house  loan  certificates  described  above 
the  Portland  banks  issued  some  $1,150,000  of  clearing  house  certificates 
in  smaller  denominations  and  designed  for  general  circulation.  This 
asset  currency  was  based  on  receipts  representing  grain  or  other  staple 
commodities  actually  stored  in  warehouses  or  in  process  of  being  shipped. 
These  certificates  represented  two-thirds  of  the  value  of  the  security. 
These  credit  devices  were  not  payable  until  February  1,  1908,  but  the 
banks  began  redeeming  and  retiring  them  early  in  December  and  by 
December  26,  1907,  only  $590,400  of  these  credit  instruments  were  still 
outstanding;  and  the  remainder  were  called  in  and  cancelled  as  fast 
as  they  were  presented  to  members  of  the  clearing  house  association.? 


* Oregonian,  January  1,  1908. 
f Ibid . p.  6. 

tOregonian,  January  1,  1908. 


24 


The  use  of  certificates  enabled  the  banks  to  meet  the  demands  of 
customers  more  readily  and  fully  and  at  the  same  time  to  supply  a 
circulating  medium  when  coin  was  being  hoarded  and  the  use  of  checks 
was  necessarily  restricted.  At  the  worst  stages  of  the  panic  the  Port- 
land banks  paid  a premium  of  3%  per  cent  for  gold.  It  was  the  usual 
practice  with  the  banks  to  furnish  employers  with  the  means  of  paying 
their  regular  wages  bill,  generally  supplying  one-half  cash  and  one- 
half  certificates.  In  this  way  many  industrial  enterprises  were  kept 
from  shutting  down,  while  salaried  persons  and  wage-earners  suffered 
little  inconvenience.  Business  houses  quite  generally  advertised,  by 
placards  in  the  windows,  that  they  were  willing  to  accept  certificates  in 
payment  for  goods.  These  credit  devices  were  then  deposited  with  the 
banks  by  merchants  and  business  men,  and  were  paid  out  again  if  the 
demand  was  sufficient  to  warrant. 

In  all  the  larger  cities  and  towns  outside  of  Portland  the  banks 
co-operated  with  each  other  in  managing  the  panic,  taking  steps  to  issue 
asset  currency,  to  encourage  the  use  of  money  substitutes,  and  to  con- 
serve their  cash  resources.  The  four  banks  of  Eugene  formed  a clearing 
house  association  expressly  for  the  purpose  of  issuing  clearing  house 
certificates  to  circulate  as  money.  As  the  basis  of  this  issue  securities' 
to  the  amount  of  $15,000  were  deposited  with  the  county  clerk  as  common 
trustee  of  the  banks.  In  all  ten  thousand  dollars’  worth  of  certificates 
were  issued  in  convenient  denominations  and  were  readily  accepted  by 
the  community  as  a substitute  for  cash. 

Immediately  after  the  suspension  of  the  banks  in  the  east  representa- 
tives from  eleven  financial  institutions  in  the  Rogue  River  Valley  met 
at  Grants  Pass  and  discussed  the  advisability  of  forming  a local  associa- 
tion for  the  purpose  of  issuing  some  form  of  asset  currency  secured  by 
collateral.  Lack  of  uniformity  in  the  collaterals  held  by  the  several  banks 
kept  them  from  reaching  an  agreement  and  no  currency  was  issued. 
It  was  the  policy  of  the  bankers,  however,  to  encourage  the  people  to 
do  as  much  business  as  possible  with  check  instead  of  money.  The 
banks  of  Southern  Oregon  agreed  to  accept  checks  and  drafts  on  other 
institutions  only  by  issuing  their  own  certificates  of  deposit,  payable  in 
current  funds  or  in  exchange  at  their  option  thus  avoiding  the  assump- 
tion of  any  more  “cash  responsibility.”  At  Roseburg  the  banks  did 
not  issue  clearing  house  certificates  but  placed  a limit  of  $25  a week 
on  cash  payments  to  a single  depositor  unless  the  customer  was  hard 
pressed  for  money  where  as  much  as  $1,000  was  frequently  paid.  The 
Salem  banks  contemplated  a joint  issue  of  asset  currency  to  move  the 
produce  but  expected  to  retire  it  with  the  proceeds  of  the  sale  as  soon 
as  the  crops  were  marketed.  Bank  officials  had  determined  in  favor 
of  such  action  in  case  the  need  was  sufficient  to  warrant  but  later 
decided  that  their  cash  resources  were  adequate.  The  few  clearing 
house  certificates  that  came  into  circulation  were  promptly  deposited 
and  remitted  to  Portland  and  San  Francisco  for  the  bank’s  credit. 
The  banks  of  Oregon  City  had  little  difficulty  in  meeting  the  cash  demands 
upon  them  when  it  seemed  advisable.  The  local  banks  floated  a con- 


25 


siderable  amount  of  clearing  house  certificates  in  meeting  the  pay  roll 
of  factory  industries.  These  certificates  were,  however,  soon  returned 
for  deposit  and  as  promptly  as  possible  were  sent  to  Portland  or  San 
Francisco  correspondents  for  credit.  The  Astoria  banks  agreed  to  settle 
with  each  other  by  means  of  draft  so  as  to  economize  their  cash  reserves. 
Though  there  was  no  established  rule  with  regard  to  the  amount  of 
cash  paid  out  as  much  as  $100  was  frequently  paid  though  larger  drafts 
were  refused  under  protection  of  the  legal  holidays. 

The  Hood  River  banks  agreed  to  cash  checks  only  on  themselves 
and  to  limit  the  allowance  of  any  depositor  to  $50  a week  unless  unusual 
circumstances  called  for  larger  amounts.  Certificates  of  deposit,  cashiers’ 
checks  and  drafts  on  correspondents  were  made  payable  in  clearing  house 
funds  instead  of  cash.  Small  amounts  of  clearing  house  certificates 
were  borrowed  from  correspondents  on  satisfactory  security  but  these 
were  soon  retired  from  circulation.  Few  attempts  were  made  to  with- 
draw deposits  of  considerable  size  and  when  the  customers  were 
acquainted  with  the  arrangement,  confidence  in  the  banks  prevailed. 
The  banks  of  Pendleton  went  through  the  panic  without  resort  to  the 
use  of  clearing  house  certificates.  As  a rule  depositors  received  such 
amounts  as  they  needed.  Customers  were  of  course  given  to  understand 
that  if  there  was  an  imperative  need  for  money  the  bank  was  willing 
to  supply  it,  but  if  their  intention  was  to  withdraw  and  hoard  it  their 
demands  were  flatly  refused.  The  banks  of  La  Grande  and  Union 
County  formed  a county  bankers’  association  principally  for  the  purpose 
of  unified  action  in  matters  of  cash  payments,  which  were  restricted  to 
$50  for  a single^  check  and  $100  a week.  In  Baker  City  customers  of 
the  banks  were  limited  to  $200  a week  in  cash  but  were  paid  in  exchange 
to  the  full  amount  of  their  deposits.  Realizing  that  depositors  with 
$500  or  less  to  their  credit  could  soon  withdraw  their  money  in  spite 
of  restrictions,  the  banks  removed  the  limitation  for  this  class  of 
customers  and  paid  them  in  full  on  demand.* 

With  the  exception  of  a constitutional  provision  against  the  issue 
of  circulating  notes,  a statutory  prohibition  against  the  conversion  of 
funds  to  private  use  by  banks  or  bank  officials,  and  laws  intended  to 
facilitate  the  assessment  of  bank  stock,  State  and  private  banks  of 
Oregon  were  practically  free  from  legal  regulation  until  the  recent 
bank  law  of  February  25,  1907.  All  except  national  banks  had  transacted 
a banking  business  subject  only  to  the  general  incorporation  laws,  and 
entirely  free  from  any  special  supervision  by  State  boards  or  officials. 
There  were  no  special  laws  which  applied  to  savings  banks,  and  there 
were  no  legal  provisions  for  winding  up  the  affairs  of  defunct  banks 
except  as  insolvent  corporations.  During  the  session  of  1907,  however, 
a comprehensive  banking  act  was  passed  which  put  all  private  banks, 
trust  companies,  and  savings  banks  under  strict  administrative  super- 
vision. The  aim  was  to  provide  better  protection  for  the  creditors  of 
the  bank  by  securing  greater  publicity  of  its  affairs  and  by  requiring 

*The  facts  here  stated  were  obtained  through  correspondence  with  national 
banks  in  all  parts  of  the  State. 


26 


minimum  capital,  minimum  cash  reserves,  the  accumulation  of  surpluses 
and  a stricter  regulation  of  loans. 

The  Governor,  Secretary  of  State  and  Treasurer  are  constituted  a 
board  of  bank  commissioners  with  power  to  appoint  a State  Bank 
Examiner  whose  term  of  office  shall  be  four  years.  The  incumbent  of 
such  position  must  have  had  at  least  three  years’  practical  experience 
in  the  banking  business  or  must  have  served  for  a like  period  in  the 
banking  department  of  some  State,  and  is  required  to  give  a bond  in 
the  sum  of  $50,000  for  the  faithful  and  impartial  discharge  of  his 
duties.* 

The  bank  examiner  has  general  supervision  over  all  firms  and  cor- 
porations conducting  a banking  business  which  is  defined  by  the  act  as 
“having  a place  of  business  within  this  State  where  credits  are  opened 
by  the  deposit  or  collection  of  money  or  currency  or  negotiable  paper 
subject  to  be  paid  or  remitted  upon  draft,  receipt,  check  or  order.” t 
The  act  prescribes  a minimum  capital  for  all  banking  institutions 
varying  in  amount  with  the  population  of  the  town  or  city  where  the 
bank  is  located.  In  towns  of  one  thousand  inhabitants  or  less  $10,000 
is  sufficient;  if  the  population  is  between  one  thousand  and  two  thousand, 
the  capital  must  be  at  least  $25,000;  in  cities  having  a population  of 
over  two  thousand  and  not  more  than  five  thousand  a capital  of  $30,000 
is  required;  in  cities  having  a population  of  five  thousand  or  upward, 
$50, 000. t 

At  least  fifty  per  cent  of  the  prescribed  capital  must  be  paid  in 
before  the  bank  is  authorized  to  begin  business  and  the  remainder  must 
be  paid  in  within  six  months  thereafter.  It  is  further  stipulated  that 
such  bank  capital  must  be  held  in  the  shape  of  money,  commercial  paper, 
bank  furniture  and  fixtures,  and  the  necessary  bank  building.il 

Banks  organized  under  the  laws  of  the  State  are  forbidden  to  hold 
any  real  estate  except  that  which  is  necessary  to  transact  its  business, 
the  cost  of  which  shall  not  exceed  fifty  per  cent  of  its  paid  in  capital, 
or  such  real  estate  as  shall  be  purchased  or  conveyed  to  the  bank  in 
satisfaction  of  debts,  or  that  which  is  purchased  at  sale  on  judgments 
or  foreclosures  under  securities  held  by  the  bank.  Any  real  property, 
excepting  that  which  is  occupied  as  an  office  together  with  the  premises 
in  the  same  building  held  for  rent  as  a source  of  income,  must  be  sold 
within  a period  of  five  years  after  the  title  is  acquired.  If 

Any  bank  or  banker  is  not  authorized  to  declare  a dividend  until 
one-tenth  of  the  net  profits  of  the  business  for  the  term  covered  by 
such  dividend  shall  have  been  added  to  the  surplus  or  such  surplus 
shall  amount  to  twenty  per  cent  of  its  paid  capitals 

The  aggregate  loan  to  any  single  person,  firm  or  corporation  must 
not  exceed  twenty-five  per  cent  of  the  bank’s  capital  and  surplus.  This 
provision  does  not  apply,  however,  to  the  discount  of  bona  fide  bills 

* Sections  1 and  4. 
t Section  7. 
t Section  8. 

II  Sections  8 and  10. 
tf  Section  15. 

£Section  17. 


27 


of  exchange  or  to  loans  made  on  real  estate,  personal  property,  ware- 
house receipts,  etc.,  provided  the  amount  of  such  loan  does  not  exceed 
seventy-five  per  cent  of  the  actual  value  of  commercial  or  business 
paper,  warehouse  receipt  or  personal  property  or  fifty  per  cent  of  the 
actual  value  of  the  real  estate.* 

The  law  also  prescribes  a minimum  cash  reserve  depending  on  the 
size  of  the  city  in  which  the  business  is  conducted,  the  amount  and  the 
nature  of  deposit  liabilities.  If  the  population  of  the  city  is  less  than 
50,000  the  bank  must  have  on  hand  in  actual  cash,  or  balances  with 
solvent  banks  approved  by  the  Bank  Examiner,  at  least  fifteen  per  cent 
of  its  demand  liabilities  and  ten  per  cent  of  its  time  deposits.  If  the 
city  has  over  50,000  inhabitants  the  reserves  must  be  twenty-five  and 
ten  per  cent  respectively.  At  least  one-third  of  the  reserves  required 
by  the  act  must  be  in  actual  cash  on  hand.t 

It  will  be  noticed  at  a glance  that  the  provisions  of  this  act  with 
regard  to  minimum  capital  varying  with  population,  prohibitions  against 
the  holding  of  real  estate  except  for  certain  purposes,  the  accumulation 
of  surpluses,  limitation  of  loans  to  a single  person  or  firm,  and  the 
requirement  for  a minimum  reserve  in  cash  on  hand  or  deposits  with 
approved  reserve  agents,  are  very  much  similar  to  the  national  bank 
act.  The  tendency  to  make  the  requirements  for  State  banks  conform 
to  those  for  similar  institutions  organized  under  federal  laws  is  further 
evinced  by  the  fact  that  State  and  private  banks  are  required  to  make 
reports  of  their  condition  on  precisely  the  same  dates  as  those  designated 
by  the  comptroller  of  the  currency  for  national  banks.t 

The  extension  and  improvement  of  banking  facilities  since  1890, 
together  with  an  increase  of  banking  capital,  principally  through  the 
growth  of  deposits,  has  operated  to  reduce  interest  rates  to  some  extent. 
The  prevailing  rate  for  money  in  Portland  is  now  7 per  cent.  Now  and 
then  exceptionally  good  loans  are  made  at  6 per  cent  but  probably 
not  more  than  enough  to  offset  those  for  which  8 per  cent  is  paid. 
This  is  of  course  the  rate  on  strictly  commercial  lines.  The  rate  for 
industrial  and  mortgage  loans  varies  according  to  circumstances  and 
depends  much  on  the  adequacy  of  the  security,  the  attendant  risks  of 
investment,  etc. 

Outside  of  Portland  the  rate  on  commercial  loans  may  be  said  to 
have  fallen  approximately  2 per  cent  since  1890.  According  to  the 
opinion  of  a number  of  bankers  in  various  parts  of  the  State  the  ruling 
rate  in  1890  was  10  per  cent,  and  in  some  communities  this  rate  per- 
sisted throughout  the  next  10  years.  The  average  rate  on  commercial 
loans  is  now  said  to  be  in  the  neighborhood  of  8 per  cent,  though  in 
some  sections  of  Eastern  Oregon  and  in  the  smaller  communities  of 
the  Willamette  Valley  10  per  cent  is  frequently  charged.  During  the 
panic  of  1893  the  bank  rate  of  discount  was  not  materially  changed 
although  there  was  an  abnormal  scarcity  of  loanable  funds  and  the 

* Section  20. 

t Section  23. 

$ Section  24.  An  excellent  summary  of  the  law  can  be  found  in  the  Oregonian 
of  January  1,  1908. 


28 


demand  for  capital  was  far  in  excess  of  the  supply.  In  the  opinion  of 
several  bankers  the  panic  merely  operated  to  cut  down  loans,  not  to 
raise  interest  rates.  In  some  communities,  however,  if  money  was  to 
be  had  at  all  and  the  lender  had  no  conscientious  scruples  with  regard 
to  usury  laws,  almost  any  sum  might  be  paid  in  the  way  of  a bonus 
to  secure  the  loan.  During  the  prosperous  years  of  1902-1907  when 
bank  deposits  were  increasing  at  such  a rapid  pace  considerable  money 
was  loaned  by  banks,  capitalists  and  money  brokers  at  rates  as  low  as 

6 per  cent.  From  10  to  20  per  cent  of  the  loans  made  by  commercial 
banks  of  the  State,  other  than  national,  are  secured  by  mortgages. 
Rates  for  real  estate  loans  vary  all  the  way  from  6 to  8 per  cent,  but 

7 per  cent  is  probably  more  common. 


Before  concluding  this  sketch  it  is  necessary  to  describe  briefly  the 
arrangement  which  Oregon  banks  make  for  drawing  domestic  and 
foreign  exchanges.  All  of  the  Portland  banks  arrange  to  draw  on 
New  York,  Chicago,  St.  Louis,  St.  Paul,  etc.,  directly.  The  customary 
rate  for  New  York  exchange  is  ten  cents  per  hundred  dollars  and 
this  rarely  changes  during  the  year.  This  charge  is  considered  a sort 
of  average  rate  sufficient  to  cover  the  cost  of  shipping  coin  as  often  as 
occasion  arises.  The  banks  expect  at  times  to  make  a profit  on  particular 
transactions  but  in  the  long  run  these  profits  about  cover  the  cost  of 
shipping  specie  and  the  incidental  expenses  of  handling  the  business. 
A few  Portland  banks  maintain  correspondents  in  London,  Paris  and 
Berlin  and  draw  foreign  exchange  direct  but  the  majority  of  them  prefer 
to  mass  their  funds  in  New  York  and  handle  European  business  through 
their  eastern  correspondents.  Some  of  the  larger  banks  also  have 
correspondents  in  Hong  Kong  and  Honolulu  through  which  they  arrange 
for  remittances  to  insular  and  Oriental  cities.  The  commoner  practice, 
however,  is  to  meet  the  demands  for  payments  growing  out  of  the 
Pacific  trade  by  drawing  drafts  through  San  Francisco  correspondents. 

Outside  of  Portland  the  practice  varies.  Even  the  smaller  banks 
arrange  to  draw  New  York  drafts  directly.  In  some  instances,  however, 
the  country  banks  prefer  to  manage  eastern  exchanges  through  Port- 
land or  nearby  correspondents.  The  prevailing  rate  for  New  York 
drafts  is  ten  cents  on  the  hundred  but  a rate  as  high  as  25  cents  is  not 
uncommon.  Within  these  limits  the  rate  varies  with  the  locality  but 
remains  fairly  constant  throughout  the  year.  Oregon  banks  quite  gen- 
erally handle  the  bulk  of  eastern  collections  through  New  York  cor- 
respondents and  in  the  country  districts  purchases  of  eastern  exchanges 
usually  exceed  their  sales.  Balances  tend  to  accumulate  in  eastern 
money  centers  and  it  is  often  necessary  to  transfer  funds  by  draft  to 
western  correspondents.  In  some  instances,  however,  country  banks 
prefer  to  send  eastern  collections  to  Portland  or  other  Oregon  cor- 
respondents and  a working  balance  in  New  York  is  maintained  by 
remitting  drafts  on  local  banks.  Thus  the  responsibility  of  equalizing 


29 


supply  and  demand  by  shipments  of  specie  is  thrown  on  Portland  or 
other  western  money  centers.  Few,  if  any,  banks  outside  of  Portland 
maintain  correspondents  in  European  cities  or  the  Orient.  Remittances 
to  foreign  countries  are  light  and  special  arrangements  for  foreign 
exchange  are  made  with  Portland  banks  or  more  commonly  with  New 
York  houses  with  branches  in  London,  Paris,  Berlin,  Hong  Kong,  and 
other  financial  centers  of  the  world.  The  firm  of  Knauth,  Nachod  & 
Kuhue  commonly  serves  in  this  capacity. 


30 


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